Showing posts with label stock watchlist. Show all posts
Showing posts with label stock watchlist. Show all posts

Wednesday, April 14, 2010

16 Quality Dividend Stocks for the long run

The dividend yield on the S&P 500 has been declining throughout 2009, amidst one of the worst years for dividends since 1955. Back in late 2008 and early 2009, yields on major market indices exceeded 3%. Currently the dividend yield on the S&P 500 is 1.70%. However, if we remove the negative yield effect of non-dividend payers in the index, the dividend yield increases to 2.30%.

In order to be flexible in this market and not limit myself only to higher yielding stocks with disappointing dividend growth prospects, I am considering lowering my entry yield criteria to 2.50%, down from the 3% which was in effect since the end of 2008. As long as the selected companies for purchase have long histories of consistent dividend raises in addition to having good prospects for future dividend growth, my yield on cost would keep on increasing over time.

The screening criteria applied toward the S&P Dividend Aristocrat index was:

1) Current yield of at least 2.50%
2) Dividend payout ratio no higher than 60%
3) Price/Earnings Ratio of not more than 20
4) 25 years or more of consecutive dividend increases



These investment ideas are only the beginning blocks of a sustainable dividend portfolio. Investors should strive to maintain a dividend portfolio consisting of at least 30 individual securities representative of as many sectors as possible. The process of building a dividend portfolio is long, as it takes time to find enough qualified candidates for further research. As a result investors should consistently apply their screening method under all market conditions, in order to take advantage of market opportunities, and include enough of the best rising dividend stars available.

Full Disclosure: Long all stocks mentioned above except LLY and VFC

This article was included in the Carnival of Personal Finance #253 (Demotivational Version)

Relevant Articles:

- Dividend Aristocrats List for 2010
- Emotionless Dividend Investing
- Yield on Cost Matters
- The Dividend Edge

Wednesday, April 7, 2010

Three Dividend Strategies to pick from

Most new investors typically tend to focus on the companies with the highest dividend yields. I am often being asked why I never write about companies such as Hatteras Financial (HTS) or American Agency (AGNC), each of which yields 16% and 19% respectively. While some of my holdings are higher yielding companies, I typically tend to invest in stocks with strong competitive advantages, which have achieved a balance between the need to finance their growth and the need to pay their shareholders.
After looking at my portfolio, I have been able to identify three types of dividend stocks.

The first type is high yield stocks with low to no dividend growth.

Realty Income (O) (analysis)

Enbridge Energy Partners (EEP)

Kinder Morgan Partner (KMP) (analysis)

Consolidated Edison (ED) (analysis)

It is important not to fall in the trap of excessive high yields, caused by the market’s perceptions that the dividend is in peril. Recent examples of this included some of the financial companies such as Bank of America (BAC). While current dividend income is important, these stocks would produce little in capital gains over time.

The second type is low yielding stocks with a high dividend growth rate.

Wal-Mart (WMT) (analysis)

Aflac (AFL) (analysis)

Colgate Palmolive (CL) (analysis)

Archer Daniels Midland (ADM) (analysis)

Family Dollar (FDO) (analysis)

One of the issues with this type of strategy is that it might take a longer time to achieve a decent yield on cost on your investment. It is difficult to achieve a double digit dividend growth rate forever. Once you achieve an adequate yield on cost on your investment, it might slow down dividend increases. The positive side of this strategy is that many of the best dividend growth stocks such as Wal-Mart (WMT) or McDonald’s (MCD) never really yielded more than 2%-3% when they first joined the Dividend Achievers index. The main positive of this strategy is the possibility of achieving strong capital gains.

The third type is represented by companies with an average yield and an average dividend growth. Some investors call this the sweet spot of dividend investing.

Johnson & Johnson (JNJ) (analysis)

Procter & Gamble (PG) (analysis)

Clorox (CLX) (analysis)

Pepsi Co (PEP) (analysis)

Automatic Data Processing (ADP) (analysis)

There is a common misconception that buying the stocks in the middle, would produce average returns. Actually finding stocks with average market yields, which also produce a good dividend growth could produce not only exceptional yield on cost faster, but also capital gains as well.

At the end of the day successful dividend investing is much more than finding the highest yielding stocks. It is more about finding the stocks with sustainable competitive advantages which allow them to enjoy strong earnings growth, which would be the foundation of sustainable dividend growth. A company like Procter & Gamble (PG) which yields almost 3% today butraises dividends at 10% annually would double your yield on cost in 7 years to 6%. A company like Con Edison (ED) would likely yield around 6% on cost in 7 years. The main difference would be capital gains – Procter & Gamble (PG) would likely still yield 3%, while Con Edison (ED) would likely yield 6%. Thus the investor in Procter & Gamble would have most likely doubled their money in less than a decade, while also enjoying a rising stream of dividend income.

Full Disclosure: Long all stocks mentioned in the article except HTS and AGNC

This article was included in the Carnival of Personal Finance #252: Famous People With Tax Troubles Edition

Relevant Articles:

- 2010’s Top Dividend Plays
- Six Dividend Stocks for current income
- Best Dividends Stocks for the Long Run
- Capital gains for dividend investors
- Dividend Growth beats Dividend Yield in the long run

Wednesday, March 17, 2010

The right time to buy dividend stocks

With the market getting overextended for several months now, and my unwillingness to chase many dividends stocks, it is time to reflect on whether I am doing the right thing or not. Some stocks such as Emerson Electric (EMR) and Realty Income (O) which I was going to add to either in March or in April are trading at valuations that seem richer than what I am willing to pay for at the time.

After writing dividend growth investor blog for over two years now, I have been able to observe investor reaction to my posts. My main source of ideas for improvement has always been with comments which offer some sort of criticism, be it constructive or not. It is understandable however that one cannot please everyone, and as a result I have pretty much kept at my ideas that dividend growth investing is a superior investing strategy for investors at all stages in their life. One of the largest criticisms that I often receive is from investors with a short-term vision in mind. Back in early 2008, the problem for owning US stocks was the weakening of the US dollar and the rise in oil prices. Somehow all commodity rich developing countries which were selling natural resources at inflated prices were being touted as the next big thing. Of course once the bubble collapsed in 2008, many countries such as Russia were hit hard and the lack of diversification in their economies was much evident.

Back in late 2008 and early 2009 most investors were constantly being bombarded with negative stories about the end of buy and hold and the death of dividend investing after a record number of dividend cuts occurred. Of course it is difficult to separate the short-term noise, from the long term story behind the economy or a particular business. The truth is that in order to be successful in investing, one should stick to a certain strategy through thick and thin. Thinking too often could cause investors to deviate from their plans, and suffer from consequences as a result. Famous speculator Jesse Livermore once said that money is made by sitting, not by thinking. It is uncommon to find men who are both right and sit tight as well.

The first few months of the bear market recovery that began in March 2009 were characterized by bears speculating about a double dip recession, nationalization of major banks etc. After a few months of stocks hitting new 52 week high however, the risk of missing out on the rally and having to pay higher prices in the future if money is not deployed now is increasing every day.

Warren Buffett had mentioned in one of his letter sto shareholders that he would rather buy an excellent business at a fair price, rather than purchase a lousy business at a fire sale price. Speaking of the two companies I mentioned above, I have to decide whether they are excellent business trading at rich valuation, or whether they represent average businesses trading at inflated prices.

My strategy for my dividend portfolio is to dollar cost average my way into approximately ten stocks per month, reinvesting dividends selectively and building a diversified portfolio.

The truth of the matter is that if I keep following my strategy, it shouldn’t really matter in the long run whether I purchased Emerson (EMR) at 45 or at 48. This should hold true as long as I do not have more than 3 or 4% allocated to that position and as long as the company is able to generate a sufficient enough earnings growth to power up the dividend hikes into the next decade. Time and again I have noticed how some of the best dividend growth stories ever such as Gillette, Geico, Wal-Mart (WMT) or McDonald’s (MCD) didn’t yield much, yet they had outstanding competitive advantages and solid dividend and earnings growth. Currently Emerson Electric (EMR) and Realty Income (O) offer their lowest yields in many months, which coupled with the low dividend growth as of lately make them a pass until the next dip in prices. However, given the fact that there is seldom any “perfect time” to deploy cash, I would definitely add to those two positions on the next dip.

This article was included in the Carnival Of Personal Finance #249: Who’s Awesomest? Pirates Vs Ninjas Vs Nuns Vs Robots Vs Real Estate Agents Vs Zombiess

Full Disclosure: Long EMR, MCD, O and WMT

Relevant Articles:

- Realty Income (O) Dividend Stock Analysis
- Ten Dividend Kings raising dividends for over 50 years
- Buffett the dividend investor
- Should you re-invest your dividends?

Wednesday, March 10, 2010

Capitalize on China’s Growth with these dividend stocks

China seems to be the engine of global growth these days. The country has managed to turn itself into the manufacturing facility of the world, producing almost everything that consumers in the western world need. It is being said that investing in China in 2010 is similar to investing in USA in 1910 or investing in the UK in 1810. Whether this turns out to be true or not, the Chinese economy has managed to expand rapidly over the past decade, fueled by demand for cheap goods which its skilled and low-cost labor force produces for worldwide markets. While there are plenty of ways to invest in the Chinese economic growth, including Chinese listed ADRs traded on the NYSE or Nasdaq, few have a long history of dividend increases, which would make them an interesting income play.

Most global companies do have a presence in China however. Some of these companies have had operations in the country for years, and have also developed a strategy for expanding their business there, which would provide strong earnings and dividend growths for the future. Some of these companies include well known dividend stocks such as McDonald’s (MCD), Coca Cola (KO), Wal-Mart (WMT) and Philip Morris International (PM).

While Philip Morris International (PM) does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. The company’s low penetration in the Chinese market, which represents one third of the worldwide demand for tobacco products, could present an attractive opportunity. PMI has reached an agreement with the China National Tobacco Company (CNTC) for the licensed production of Marlboro China and the establishment of an international equity joint venture outside of China. In August 2008 production of Marlboro began under license in two factories. The joint venture has successfully launched three Chinese heritage brands in six international markets. Check my analysis of the stock.

Coca Cola (KO) has operated in China since 1979 and was a major sponsor of the recent summer Olympic Games held in Beijing. The company is planning to triple the size of its sales in China over the next decade, and double the size of its bottling plants in the country. China is the third largest country for Coca Cola by revenues, and it’s also a big part of the company’s expected growth in sales over the next decade. Coca Cola is already the largest soft drinks brand in China and its volumes are twice the size of rival PepsiCo (PEP). The potential of the Chinese market is immense – last year there was an average per capita annual consumption of 28 Coke products in China, which was much lower than the 199 Coke products in per capita consumption in Brazil (source). Check my analysis of the stock.

Wal-Mart (WMT) currently has 267 locations in China, operating under Wal-Mart or Trust Mart’s names. The company had 3615 international locations at the end of 2008. There is still room for growth in Chinese operations, fueled by the increase in number of middle-class families in the country. For Wal-Mart, China represents the biggest frontier since it conquered America. China's voracious consumers are pushing retail sales to a 15 percent annual growth rate; that market will hit $860 billion by 2009, according to Bain & Co. (source). Check my analysis of the stock.

McDonald’s (MCD) currently owns over 2000 stores in China. The company has an ambitious plan to expand operations by developing 500 new locations in 3 years. McDonald’s opened 146 restaurants in 2008 and earlier this year expected to open 175 restaurants in 2009. The company has been able to increase sales volumes by expanding its menu of items, offering convenient store hours and opening drive-thrus in the process. Restaurants with drive-thrus are more likely to achieve higher sales and satisfy the demands of the increasingly mobile society in China. Expanding store hours and adding breakfast items to the menu is another opportunity for internal growth at Mcdonald’s Chine operations. Check my analysis of the stock.

McDonald’s (MCD), Wal-Mart (WMT) and Coca-Cola (KO) have each raised dividends for more than 25 years in row. Expanding their operations in China would be the cornerstone that would provide the necessary earnings growth for these dividend aristocrats to be able to raise distributions for the next two decades.

Full Disclosure: Long MCD, PM, WMT, KO

This post was featured on the Carnival of Personal Finance – Tour of Ireland Edition

Relevant Articles:

- Philip Morris International versus Altria
- Seven dividend aristocrats that Buffett owns
- Dividend Aristocrats List for 2010
- Valuing Dividend Stocks

Wednesday, December 2, 2009

Top US Dividend Stocks to Accumulate Now

The stock market has been on a consistent bull run since it hit a low in March 2009. As stocks keep hitting new highs for the year however, buyout by the prospect of economic recovery, many value investors are getting nervous about valuations. The P/E ratio on the S&P 500 for example has risen to its highest levels in several years. In addition to that, many dividend stocks, which were once selling at very attractive valuations just a few months ago, are becoming expensive.

There are several ways that the market could correct itself. First, since the market is typically a strong indicator that predicts contractions and expansions in the economic cycle much better than most economists, the current upturn could be a forecaster of economic growth. This would lift earnings, decrease unemployment and bring valuations down to more reasonable levels, without causing any depression in stock market prices overall. If the market is ahead of itself however, it could stay flat for a period of time.

The second option is for the market to collapse and bring valuations to more reasonable levels. It seems that most investors and pundits believe that a severe decline in stock prices is in the cards over the next few months. Since few people seem to believe in the market rally however I strongly believe that it could easily continue.

The third option could be that the market doesn’t correct itself but keeps roaring higher, propelled by expectations of strong corporate earnings. When earnings rebound, stocks won’t look as expensive as they do today.

As a dividend investor I try to allocate some funds into purchasing several stocks every month. The main problem I have been having since July is that the same stocks are appearing on my buy screen for several months now. While it is always good to be able to purchase what you might consider the best dividend stocks in the world, history has definitely showed us that even the bluest of blue chips might not be bulletproof in the long run. It is concerning to add money to the same stocks each and every month, which could make a portfolio more concentrated and less diversified. Valuations are an important factor, which every dividend investor should implement as part of their entry criteria, in order to make sure that they don’t overpay for stocks. Overpaying for stocks could lead to substandard returns over time.

I screened the list of dividend aristocrats for dividend payout ratio of less than 50%, dividend yield of 3% and P/E of less than 20. I did relax the criteria a little bit to include stocks with ucrrent yields of 2.80% as well as those with payout ratios of up to 55%. The stocks which look promising right now include:



As a matter of fact, stocks could continue climbing the wall of worry far longer than anyone could stay sane. Disciplined dividend investors should stick to their strategies in the meantime and refuse to concentrate their portfolios or overpay for stocks. While keeping a portion of your portfolio in cash or fixed income might seem ludicrous given the low interest rates, it could provide some cushion to ones portfolio should the right stocks fall below the right entry prices.

If stocks were to keep going higher in a straight line and if Dow and S&P 500 reach all time highs in the process, by pushing valuations higher and higher, investors would probably be kicking themselves for “missing the boat”. As individual investors however, we are not rewarded based off short term performance, unlike mutual fund managers who have to be invested at all times. Thus, individual investors have an advantage over the pros right now since they could decide for themselves whether paying top dollar for adding to existing stock positions is worth it or not.

Back in 1990’s the stock market was in the midst of a strong bull run, which pushed valuations to stratospheric levels. Investors enjoyed double digit annual increases in stock prices and thus they didn’t care that rising prices pushed dividend yields to very low levels. Fast forward one decade and we are still where we were in the late 1990’s. Even strong blue chip dividend growers such as McDonald’s (MCD), Automatic Data Processing (ADP) and Pepsi Co (PEP) were yielding less than 2% each, which made them largely unsuitable for a dividend growth portfolio at the time.

In order to be successful, a dividend investor has to identify the right dividend growth stocks, establish positions at attractive valuations over time, reinvest dividends selectively and diversify across sectors, industries and continents. These sound strategies would ensure the long term survival of the individual investor even during the most adverse of conditions.

Full Disclosure: Long positions in all of the securities above

Wednesday, August 12, 2009

13 dividend stocks to enter on dips

Ever since the markets hit a milti year low in March, investors have been wondering how sustainable the advance is. Some claim that the bear market is over, while others believe that the worst is yet to come in the grand scheme of events.

Intelligent dividend investors are not worried about short-term fluctuations in the markets however. They understand that if they follow a rigorous screening process and acquire a diversified mix of the best dividend paying companies in the world, their distributions would provide a positive return in any market. In a previous post I identified 12 attractively valued dividend stocks to acquire now. It is important however not to overpay for stocks, even those with exceptional moats, as this could lead to underperformance relative to their benchmark over time.

If the markets were truly overstretched, then a slight retracement from markets recent highs would be a welcoming sign for income investors, who are looking to exploit these conditions by acquiring great franchises on dips. Pockets of opportunity allow dividend investors to buy solid businesses at reasonable prices, decent yields and acceptable dividend growth rates.

In order to capitalize on such opportunities, I have screened for companies, which have raised their dividends for more than 25 consecutive years. My criteria were are follows:

1) Stock has increased dividends for more than a quarter of a century
2) Price/Earnings Ratio of less than 20
3) Dividend payout ratio of less than 50%
4) Dividend yield is more than 2%, but no more than 3%

The companies, which I identified in the screen, are listed below:



(Open as a spreadsheet)

I require a 3% initial dividend yield before initiating a position in a stock. Thus the above-mentioned stock list should be acquired only on dips below the target price. Another strategy for enterprising dividend growth investors is selling cash secured puts on the stocks below, with strike prices close to the target price mentioned above. I have provided some explanation why I require at least some yield below.

Investors often overpay for stocks because of the recency phenomenon, where they discount double-digit growth indefinitely. This leads to purchasing stocks with unacceptably low dividend yields, high P/E ratios and rosy predictions for strong dividend growth for eternity. Such conditions are simply unsustainable.

Thus by buying a stock with a dividend yield of at least 3% an investor’s income is relatively well covered in a scenario where the company stops growing its distributions. With this margin of safety the investor still generates some dividend income until they manage to sell the stock and re-invest the proceeds in a more promising dividend growth stocks. With a 1%-2% yielder, it would take forever for our enterprising dividend investor to earn a reasonable dividend income if distribution growth slows down or grinds to a halt.

Full Disclosure: Long MHP, MMM, SHW and WMT

Relevant Articles:

Tuesday, July 7, 2009

12 Dividend Stocks to own in this market

With markets recovering from the lowest levels since 1996 and currently trading at the same levels as one decade ago, buy and hold investors’ portfolios are hurting. Dividend investors are also sharing the pain, as several prominent companies such as Pfizer, General Electric and JP Morgan have cut their dividends. Despite the fact that most major sectors have not been left without damage to dividends, the majority of the cuts have been centered in the financials segment of the market. Furthermore, despite all the gloom surrounding the stability of payments, investors who are sticking to a sound strategy of diversification, dollar cost averaging and dividend reinvestment are still enjoying increases in their dividend income.

I believe that whether the bottom has been hit or not astute dividend investors should seize the opportunity that the current bear market offers. I ran a screen on the S&P Dividend Aristocrats index to identify attractively valued stocks using the following criteria: (source Yahoo Finance)

1. Dividend Payout Ratio is less than 50%
2. Price/Earnings Ratio is less than 20
3. Current Dividend Yield is at least 3%

There were 12 companies that made the cut. Check the list below:
(Alternative link to view the watchlist)
I believe that diversification is important as well. Below you could find a breakdown of the list by sector plus a link to my most recent stock analysis of each company.

Consumer Discretionary

(VFC) VF Corp (analysis)

(MHP) McGraw-Hill Companies (analysis)

Consumer Staples

(PG) Procter & Gamble (analysis)

Financials

(AFL) AFLAC Inc (analysis)

(CB) Chubb Corp. (analysis)

Health Care

(ABT) Abott Laboratories (analysis)

(JNJ) Johnson & Johnson (analysis)

Industrials

(MMM) 3M Co (analysis)

(DOV) Dover Corp. (analysis)

(EMR) Emerson Electric (analysis)

(SWK) Stanley Works (analysis)

Materials

(NUE) Nucor Corp. (analysis)

The thing that separates these companies from other dividend stock lists is that they have a tendency to increase their dividends consistently every year. With an average yield of 3.60% this list has generated an average dividend growth of 11% over the past decade. If history were to repeat itself over the next 6 –7 years, the average yield on cost should be double what you can get today. In the worst case I expect that the income stream growth from this list of stocks would at least match the rate of inflation over time.

Full Disclosure: I have positions in all stocks above except for VFC and SWK, which I plan on buy on dips. Trade stocks for free through Zecco.com, the Free Trading Community.

Related Posts:

- Dividend Portfolios – concentrate or diversify?

- Replacing dividend stocks sold

- Dividends versus Share Buybacks/Stock repurchases

- General Electric (GE) Cuts the Dividend

Tuesday, February 3, 2009

Bad Start of the Week for Retail Investors

The week started on a negative note on Monday as broader indexes such as Dow Industrials closed below 8000. Investor’s sentiment wasn’t helped by dividend cuts in the retail sector.

Macy’s (M) board of directors announced a steep cut in its quarterly dividends from 13.25 cents to 5 cents/share. Furthermore the company decided to eliminate 4% of its workforce by laying off 7000 employees. The retailer expects much lower EPS numbers for 2009 at 0.40-0.55/share, versus $1.21 that Wallstreet analysts had expected previously. The news that really showed that management expects worse things ahead, other than the dividend cut, is the reduction in capital spending by 100-150 million dollars in 2009.

Other retailers such as Wal-Mart (WMT) , Target (TGT) and Family Dollar (FDO), all of which are dividend aristocrats, fell slightly on the news. Check out my analysis of Wal-Mart (WMT), Target (TGT) and Family Dollar (FDO). Despite the fact that both retailers are expected to perform well in the current economic turbulence, I do not like the low dividend yields at the moment. I am seeing slowing dividend growth both at Wal-Mart and Family Dollar as well. Wal-Mart will be announcing its annual results and hopefully a dividend increase on its Earning Release on February 17. FDO already increased its dividends by 8% in 2009.I would be adding to my retail holdings in Family Dollar and Wal-Mart on dips below $18 and $32 respectively. I will be looking at initiating a position at Target (TGT) on dips below $21.40. The major competitor to Wal-Mart is known to be increasing its dividends at a slower pace in the single digits during tough periods such as the 2000-2002 slowdown.

If the January Barometer is correct, we will be seeing lower prices by the end of the year, so seeing lower prices in the retail stocks mentioned above won't be surprising at all.

Full Disclosure: Long WMT and FDO

Relevant Articles:

- Wal-Mart Dividend Analysis
- FDO Dividend Analysis
- Six Dividend Stocks Raising the bar
- Dividend Aristocrats List for 2009

Friday, March 21, 2008

Dividend Growth Stocks Watchlist

The two lists that I am concentrating right now are the S&P 500 Dividend Aristocrats and the S&P High Yield Dividend Aristocrats Index.
I created custom watch lists in Yahoo! Finance in order to summarize the two groups of dividend achievers by a variety of criteria such as Symbol, Yield, P/E , Div/Shr, Last Price,EPS (ttm) ,PEG Ratio ,Dividend Payout, 5 year dividend growth rate.
What I did was first exclude any stocks which had a dividend payout ratio of more than 50%. That gives me some reasonable assurance that the company is less likely to cut its dividends. I also look at P/E ratios, since I do not want to overpay for a company. Anything with a P/E of over 20 is out of my watchlist.
I also look for the PEG ratio but just to find stocks which might be expensive in terms of their growth prospects.
A third thing that I look for is a dividend yield of at least 2%, which is a little bit over than the current yield of 2.00% that SPY is rewarding its shareholders.
The last but not least criteria that I screen for is the 5 dividend growth ratio. I am looking for an average annual dividend growth of at least 5% over the past 5 years. The reason why I selected dividend growth in the end is because I want to decrease to a minimum the rush to buy a stock that simply increased its dividend for whatever reason, whose fundamentals cannot support any significant further increases in the dividend payments.
Based off of this screen, here is my stock lists that I follow :























I would continue screening for potential stocks to add to my buy watchlist on a monthly basis. I might add or remove stocks from my watchlist depending on how undervalued/overvalued I perceive them to be. If I stock in which I have a position drops off my buy watchlist, I would keep holding it, but I won’t be adding to that position until the technical’s and the fundamentals match my criteria.

Popular Posts